Category Archive: 5.) The United States

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It Was Collateral, Not That We Needed Any More Proof

2017-09-30

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2017-09-30

US Treasury, Jan - Sep 2017
Eleven days ago, we asked a question about Treasury bills and haircuts. Specifically, we wanted to know if the spike in the 4-week bill’s equivalent yield was enough to trigger haircut adjustments, and therefore disrupt the collateral chain downstream. Within two days of that move in bills, the GC market for UST 10s had gone insane.To be honest, it was a rhetorical exercise.

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The Real Estate View For A Second Lost Decade

2017-09-29

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2017-09-29

US Existing Home Sales, Jan 2011 - Jul 2017
The National Association of Realtor (NAR) reports today that sales of existing homes in the US were down 1.7% in August 2017 from July. At a seasonally-adjusted annual rate of 5.35 million, that’s the lowest pace for resales since July 2016. It is yet another data point reflecting the almost certain end of “reflation” in the economic sense.

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Why The Fed’s Balance Sheet Reduction Is As Irrelevant As Its Expansion

2017-09-27

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2017-09-27

Japan Monetary Base, Jan 2013 - 2017, US Versus Canada Real GDP, 2007 - 2017
The FOMC is widely expected to vote in favor of reducing the system’s balance sheet this week. The possibility has been called historic and momentous, though it may be for reasons that aren’t very kind to these central bankers. Having started to swell almost ten years ago, it’s a big deal only in that after so much time here they still are having these kinds of discussions.

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PBOC RMB Restraint Derives From Experience Plus ‘Dollar’ Constraint

2017-09-27

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2017-09-27

PBOC Balance Sheet, Aug 2006 - 2017
Given that today started with a review of the “dollar” globally as represented by TIC figures and how that is playing into China’s circumstances, it would only be fitting to end it with a more complete examination of those. We know that the eurodollar system is constraining Chinese monetary conditions, but all through this year the PBOC has approached that constraint very differently than last year.

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Bi-Weekly Economic Review: As Good As It Gets

2017-09-26

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2017-09-26

The incoming economic data hasn’t changed its tone all that much in the last several years. The US economy is growing but more slowly than it once did and we hope it does again. It is frustrating for economic bulls and bears, never fully satisfying either. Probably more important is the frustration of the average American, a dissatisfaction with the status quo that permeates the national debate. The housing bubble papered over the annoying lack of...

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Swimming The ‘Dollar’ Current (And Getting Nowhere)

2017-09-26

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2017-09-26

PBOC Balance Sheet, Aug 2011 - 2017
The People’s Bank of China reported this week that its holdings of foreign assets fell slightly again in August 2017. Down about RMB 21 billion, almost identical to the RMB 22 billion decline in July, the pace of forex withdrawals is clearly much preferable to what China’s central bank experienced (intentionally or not) late last year at ten and even twenty times the rate of July and August.

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Global Asset Allocation Update: Step Away From The Portfolio

2017-09-25

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2017-09-25

Moderate Allocation
There is no change to the risk budget this month. For the moderate risk investor, the allocation between risk assets and bonds is unchanged at 50/50. There are no changes to the portfolios this month. The post Fed meeting market reaction was a bit surprising in its intensity. The actions of the Fed were, to my mind anyway, pretty much as expected but apparently the algorithms that move markets today were singing from a different hymnal.

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Expectations and Acceptance of Potential

2017-09-23

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2017-09-23

University of Michigan Consumer Confidence, Jan 1997 - 2017
The University of Michigan reports that consumer confidence in September slipped a little from August. Their Index of Consumer Sentiment registered 95.3 in the latest month, down from 96.8 in the prior one. Both of those readings are in line with confidence estimates going back to early 2014 when consumer sentiment supposedly surged.

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IP Weathers Storms But Not Cars

2017-09-23

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2017-09-23

US Industrial Production, Jan 2010 - Jul 2017
In late August 2006, ABC News asked more than a dozen prominent economists to evaluate the impacts of hurricane Katrina on the US economy. The cataclysmic storm made landfall on August 29, 2005, devastating the city of New Orleans and the surrounding Gulf coast. The cost in human terms was unthinkable, and many were concerned, as people always are, that in economic terms the country might end up in similar devastation.

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Retail Sales and the End of ‘Reflation’

2017-09-22

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2017-09-22

US Retail Sales, Jun 2011 - Aug 2017
There will be an irresistible urge to the make this about the weather, but more and more data shows it’s not any singular instance. Nor is it transitory. What does prove to be temporary time and again is the upside. The economy gets hit (by “dollar” events), bounces back a little, and then goes right back into the dumps. This, it seems, is the limited extent of cyclicality in these times.

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The CPI Comes Home

2017-09-22

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2017-09-22

US Consumer Price Index, Jan 2016 - Aug 2017
There seems to be an intense if at times acrimonious debate raging inside the Federal Reserve right now. The differences go down to its very core philosophies. Just over a week ago, Vice Chairman Stanley Fischer abruptly resigned from the Board of Governors even though many believed he was a possible candidate to replace Chairman Yellen at the end of her term next year. His letter of resignation only cited “personal reasons.”

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A Clear Anchor

2017-09-21

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2017-09-21

China Fixed Asses Investment, 2014 - 2016
All the way back in January I calculated the total size of China’s 2016 fiscal “stimulus.” Starting in January 2016, authorities conducted what was an enormous spending program. As it had twice before, the government directed increased “investment” from State-owned Enterprises (SOE). By my back-of-the-envelope numbers, the scale of this fiscal side program was about RMB 1.45 trillion, or nearly 2% of GDP

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Dear Jamie Dimon: Predict the Crash that Takes Down Your Produces-Nothing, Parasitic Bank and We’ll Listen to your Bitcoin “Prediction”

2017-09-20

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2017-09-20

Central Bank balance sheet, 2006 - 2017
This is the begging-for-the-overthrow-of-a-corrupt-status-quo economy we have thanks to the Federal Reserve giving the J.P. Morgans and Jamie Dimons of the world the means to skim and scam the bottom 95%. Dear Jamie Dimon: quick quiz: which words/phrases are associated with you and your employer, J.P. Morgan?

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Harvey’s Muted (Price) Impact On Oil

2017-09-19

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2017-09-19

US Crude Oil Stocks, Nov 2016 - Sep 2017
The impact of Hurricane Harvey on the Gulf energy region is becoming clear. There have been no surprises to date, even though the storm did considerable damage and shuttered or disrupted significant capacity. Most of that related to gasoline, which Americans have been feeling in pump prices.

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Yes, This Time It Is Different: But Not in Good Ways

2017-09-18

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2017-09-18

Central Bank balance sheet, 2006 - 2017
Yes, this time it's different: all the foundations of a healthy economy are crumbling into quicksand. The rallying cry of Permanent Bulls is this time it's different. That's absolutely true, but it isn't bullish--it's terrifically, terribly bearish. Why is this time it's different bearish going forward? The basic answer is that nothing that is structurally broken has actually been fixed, and the policy "fixes" have fatally weakened the global...

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When You Are Prevented From Connecting The Dots That You See

2017-09-18

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2017-09-18

US Real Personal Income, Jan 2010 - Jul 2017
In its first run, the Federal Reserve was actually two distinct parts. There were the twelve bank branches scattered throughout the country, each headed by almost always a banker of local character. Often opposed to them was the Board in DC. In those early days the policy establishment in Washington had little active role. Monetary policy was itself a product of the branches, the Discount Rate, for example, often being different in each and every...

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The JOLTS of Drugs

2017-09-17

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2017-09-17

US Overdose Deaths Involving Opioids, 2000 - 2015
Princeton University economist Alan Krueger recently published and presented his paper for Brookings on the opioid crisis and its genesis. Having been declared a national emergency, there are as many economic as well as health issues related to the tragedy. Economists especially those at the Federal Reserve are keen to see this drug abuse as socio-demographic in nature so as to be absolved from failing in their primary task should it be found...

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Housing Bubble Symmetry: Look Out Below

2017-09-17

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2017-09-17

U.S. National Home Price Index, 1980 - 2017
Housing markets are one itsy-bitsy recession away from a collapse in domestic and foreign demand by marginal buyers. There are two attractive delusions that are ever-present in financial markets:One is this time it's different, because of unique conditions that have never ever manifested before in the history of the world, and the second is there are no cycles, they are illusions created by cherry-picked data; furthermore, markets are now...

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The Real Reason Wages Have Stagnated: Our Economy is Optimized for Financialization

2017-09-16

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2017-09-16

US Wages & Salaries as GDP, 1960 - 2017
Labor's share of the national income is in freefall as a direct result of the optimization of financialization. The Achilles Heel of our socio-economic system is the secular stagnation of earned income, i.e. wages and salaries. Stagnating wages undermine every aspect of our economy: consumption, credit, taxation and perhaps most importantly, the unspoken social contract that the benefits of productivity and increasing wealth will be distributed...

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Is the High Cost of Housing Crushing Wages?

2017-09-15

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2017-09-15

Top 5% Spending, 1990 - 2012
The authors' thesis doesn't explain the 47-year downtrend of labor's share of the economy. A provocative essay, Don't Blame the Robots, makes the bold claim that "Housing Prices and Market Power Explain Wage Stagnation." (Foreign Affairs) In other words, the stagnation of the bottom 95% of wages isn't caused by automation or offshoring, but by the crushingly high cost of housing:

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